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The Future of Europe Alberto Alesina Barcelona May 2008.

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Presentation on theme: "The Future of Europe Alberto Alesina Barcelona May 2008."— Presentation transcript:

1 The Future of Europe Alberto Alesina Barcelona May 2008

2 Acknowledgments Much of the material is from “The Future of Europe: Reform or Decline” Alberto Alesina and Francesco Giavazzi MIT Press 2006, Spanish Translation forthcoming, Antoni Bosch

3 Since the late 1980’s Europe is loosing ground Income per person relative to the U.S. 195019601970198019902006 France 587082868276 Germany 325356597971 Italy 41587279 70 Spain 273249586170 Euro area 425667717573

4 Why has the European miracle stopped sometime in the 1980’s Policies the answer to social demands of the 1960’s. Effects on Meritocracy Inflation Public Finance industrial policy to help incumbents: firms, workers. New firms, consumers never entered the picture Technology an economy able to imitate but not to innovate (like Japan)

5 What explains differences in income per person? Differences in: fraction of the population employed hours worked per person employed hourly productivity

6 Decomposing the growth rate of income per person (growth rates, 1980-95) income per person employment rate hours worked per employee hourly productivity U.S.2.2 Germany1.7- 0.1- 0.93.3 France1.6- 0.4- 0.73.1 Italy2.1 0.0- 0.32.5 Spain2.6- 0.1- 0.63.9

7 Decomposing the growth rate of income per person (growth rates, 1995-2006) income per person employment rate hours worked per employed hourly productivity U.S.2.40.2- 0.32.6 Germany1.4 0.3- 0.61.8 France1.9 0.6- 0.72.1 Italy1.31.0- 0.20.4 Spain4.24.9- 0.2

8 Annual hours Worked Over Time

9 Weekly hours worked per person vs. marginal tax rates Austria Belgio Canada Rep. Ceca Danimarca Finlandia Francia Germania Grecia Islanda Irlanda Italia Messico Olanda Nuova Zelanda Norvegia Portogallo Rep. Slovacca Spagna Svezia Regno Unito USA 15 20 25 30 Ore settimanali per persona. Tasso marginale di tassazione

10 Annual hours worked per full time employee vs. share of workers covered by collective wage agreements Australia Austria Belgio Canada Finlandia Francia Germania Giappone Olanda Nuova Zelanda Norvegia Portogallo Spagna Svezia Svizzera Regno Unito USA 1400 1600 1800 2000 2200 Media Ore Annuali tra Impiegati Full Time 20406080100 Copertura da Contrattazione Collettiva

11 Job creation: Europe vs. U.S. USEuro area GermanyFranceItalySpain 1980-95 total number of jobs (mil.)25,914,5 jobs (annual growth rate)1,30,90,30,2 hourly productivity1,43,33,12,53,9 1995-06 total number of jobs18,318,0 jobs (annual growth rate)1,3 1,41,01,25,1 hourly productivity2,61,82,10,4- 0,2

12 What can be done? 1.Liberalization of goods and services markets: then it will also be easier to liberalize the labor market 2.Labor Market: less judges, more generalized unemployed protection networks

13 The lack of competition affects the labor market Source: Giuseppe Nicoletti et al, OCSE, 1999.

14 What can be done? 3. Welfare: taking from someone and giving to others (often to the same ones) is often a waste and it does not reduce inequalities and poverty: you’d better tax people less

15 Expensive but ineffective welfare systems per cent of households at risk of poverty before and after social transfers (2003) beforeafter Sweden2911 Finland2811 Holland2212 Denmark3212 beforeafter Germany2416 France2612 Belgium2916 Italy2219 Spain2219 Greece2421 U.K.2618 Source: Eurostat

16 What can be done? 4.University & Research: different rules, more incentives, more competition among universities (the legal recognition of the degree should be abolished) 5.Reduce market entry barriers and the cost of doing business 6.An inefficient civil justice is an entry barrier

17 Could the EU be a solution? The EU has two “souls”: a pro market one (single market polices, protection of competition, harmonization of rules of commerce) a dirigiste one: “Lisbon agenda”, harmonization of social policies, imposition of common social goals to all member countries

18 Could the EU be a solution? Single market, competition, euro: YES Rhetoric of coordination, social policies harmonization, Lisbon agenda: NO

19 So what should the EU do? Do relatively little but do it well: single market, competition, encourage structural reforms Stay out of areas where differences of opinions amongst members are much more important than the benefits of coordination

20 Are European anti-market? Yes ! Would you agree with a market economy? (results of a survey by the University of Maryland) France36%Germany65% Argentina44%Canada65% Russia44%Nigeria65% Turkey46%UK67% Brasile55%Indonesia68% Kenya56%India70% Italy59%Korea70% Mexico59%USA73% Poland62%Philippines74% Spain65%China75%

21 Why ? Incorrect perception that any market oriented reform generate injustice, and inequality This is wrong. Often in justice and inequalty are created by distoretd socila and wlefare polcies

22 Current Events Major Credit crunch avoided The new seventies? Oil, wages and monetary polciy

23 Risks Anti market sentiments on the rise. Protectionism in US? Protectionism in Europe? Inflation on the rise: ECB in a bind Adjustment in Portugal Italy and Spain, strain on EMU.

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